Housing Starts Rise 5.3% in November

Latest Figures Surprising to Some Analysts

Juan Raas works on a house in a San Diego housing development yesterday. Construction was unexpectedly strong last month. (By Jack Smith -- Bloomberg News)

Housing starts rose 5.3 percent in November, and 17.5 percent compared with the same month last year, according to a Commerce Department report, baffling some housing-industry analysts who had predicted that housing starts would level off or decline slightly.

Permits for new construction climbed as well, rising 2.5 percent in the month and 3 percent from the same month in 2004, according to the government report.

The statistics "are above most people's expectations, including mine," said David Seiders, chief economist of the National Association of Home Builders, who had predicted a slight decline in construction activity. The association on Monday released its monthly survey of builder confidence, which found that builder expectations, though still optimistic, had fallen in December after a similar dip in November.

"The question is what the heck is going on," Seiders said. "Builders tell us buyers are having a problem with where home prices have gone, that rising interest rates are a slowing factor" and that potential buyers were concerned about high energy prices.

He speculated that builders may be pushing ahead to construct homes that were planned six months ago and that they were propelling sales by offering buyers incentives, such as extra amenities or assistance with closing costs.

The statistics were also "a little surprising" to David Lereah, chief economist for the National Association of Realtors. "I was expecting to see a flat number," Lereah said. "For the start numbers to be up is a little eyebrow-raising."

Lereah said builders may be "playing catch-up," proceeding with construction orders placed in the summer. "There's still a lot of demand for new homes because builders can respond to price changes more quickly than the existing sales marketplace," he said.

Kenneth Wenhold, Virginia and Maryland director for Metrostudy, a Houston-based real estate firm that specializes in the new-home market, said the report may reflect the continuing strength of the market for more affordable homes. He said he has heard many reports of slowdowns in various parts of the home-building market, so his "gut reaction" was that the report may not be a good statistical reflection of the nationwide market.

"Either the numbers are wrong or it's just a sampling error," he said.

Housing starts rose throughout much of the country, according to the report. They rose 11 percent in the Northeast, 12.3 percent in the Midwest and 11.5 percent in the West. They fell slightly, 1.3 percent, in the South, which includes the Washington area.

Commerce Department spokesmen were unavailable for comment.